2/28/14

The answer
is not easy. Figure 1 show that there is a positive correlation between the
total growth in population since 1950 and the total GDP growth (data borrowed
from the Total Economic Database run by the Conference Board). The countries
with rapidly growing population get higher GDP growth rate. However, when the
GDP is replaced with the GDP per capita in Figure 2, the growth in population
seems to be a negative factor for personal prosperity. The U.S. does not
demonstrate any superiority over any European country except Switzerland.
However, we have to take into account that the level of GDP per capita in 1950
was almost the highest in the US and Switzerland.

Figure 1.
The total growth in population since 1950 vs. the total growth in real GDP

Figure 2.
The total growth in population since 1950 vs. the total growth in real GDP per
capita.

2/21/14

This
is an update of our previous post with an addition of two more months and
calculation of the slope of the new trend.

We
found sustainable linear trends in the difference between the headline and core
CPI in 2007. We also were the first to suggest
that the linear trend between 2002 and 2008 to be reversed to the opposite
after an extended period of strong fluctuations. These findings are currently
validated by six years of observations – the studied difference is on a
sustainable linear trend since the middle of 2011. When extended into the
second part of the 2010s, this trend implies that the joint consumer price of
food and energy will be falling against other consumer goods and services in
the headline CPI. (Figure 4 is an update,
which demonstrates the slope of the new linear trend is similar to that between
1987 and 1999.)

We
have been routinely reporting on the difference between the headline and core
CPI since
2008. Figure 1 illustrates our general finding that this deference can be
well approximated be a set of linear trends. The last trend likely finished in
2009. That’s why we expected a new trend to evolve since 2011 into the late
2010s.

The
U.S. Bureau of Labor Statistics has reported the estimates of various consumer
price indices for December 2013. Figure 2 shows the predicted trend and the
actual difference since 2002. The studied difference has been fluctuating
around the zero line between in 2009 and 2011 and then showed a turn to the early
predicted trend (Figure 3). Essentially,
the zero difference suggests that the core and headline CPI are practically
equal and evolve at the same monthly rate, i.e. the joint price index of energy
and food has been following the price index of all other good and services (the
core CPI) one-to-one. Figure 4 shows
that the new trend has finally stabilized and the observed difference between
the core and headline CPI (normalized to the headline CPI) demonstrates no large
deviations from this trend. The slope of 0.0021 per year is similar to that
observed between 1987 and 1999. This is a good indicator that the next 10 years
the difference will follow the current trend, i.e. the core CPI will grow at a
lower rate that the other CPI components.

Figure 1. Two trends in the difference between the headline
and core CPI.

Figure 2. The evolution of the difference between the core
and headline CPI since 2002.

Figure 3. The evolution of the difference between the core
and headline CPI since 2010.

Figure 4. The new trend is similar
to that between 1987 and 1999. The duration of the new trend will likely be
similar, i.e. 12 years

2/15/14

Here we show that the source of increasing income
inequality in the tax law. At the end of the day, the whole bunch of US
politicians is responsible for the increase in the portion of personal income
for the richest families. This is good news since the return to “normal” income
distribution is a political procedure. There are no economic forces behind the
change, which would be much more difficult to overcome.

We have discussed the evolution of inequalityin the USA a few times in this blog and
demonstrated that the proportion of personal (money) income in the Gross
Domestic Product has not been changing much since 1947. This is the year when
the Bureau of Labor Statistics started to measure personal incomes. We have also
revealed the source of some kind of virtual increase in income inequality –
private companies redistribute their income in favor of personal income of
their owners. The question is – how do they get extra money to redistribute to
their private owners? This post answers this question - the US tax system
started to reduce the level of tax for private companies. Primarily, it is made
by increasing the rate of depreciation, which enterprises are officially
permitted to charge for tax purposes (usually fixed by law). Hence, the tax law in responsible for the
increasing inequality.

We start with a graph showing the growth in GDP, gross
personal income (GPI) and compensation of employees (paid) since 1929. Figure 1
demonstrates that the level of GPI has been rising faster than that of the GDP
(and the compensation) since 1979. (The share of GPI in the GDP has been rising
since 1979!) The difference between the GPI and GDP curves depicted in Figure 2
has a striking kink around 1979. And this is the start of the current rally in
the rich families’ personal income. In other words, a new political (taxation
is a fully political issue) era started in 1979. We would like to stress again
the proportion of the compensation of employees in the GDP has not been
changing since 1929, with a small positive deviation in the end of 1990s and a
negative deviation since 2009.This
observation supports our previous finding that the proportion of personal (money)
income in the GDP has not been changing.

So, where the extra money is from? The level of
personal income has been actually increasing faster than that of the GDP and it
should be a looser, which lost its share in the GDP.Figure 3 shows two major components of the
GPI. The net operating surplus (private) has been changing at the same rate as
the GDP since 1929, while the proportion of taxes on production and imports has
been growing at lower rate since 1980. We have allocated the source of income
for rich families. They take money from the decreasing taxes. But what is the
mechanism of money appropriation? Figure 4 demonstrates that the decrease in
taxes goes directly into the increasing share of consumption of fixed capital.
This is the force behind the increasing income inequality.The increasing share of the consumption of
fixed capital is successfully converted in private money, not in investments!
This is a political problem started likely started by Reagan.

There is no economic problem behind increasing income
inequality.

Figure 1. GDP, GPI, and compensation of employees
normalized to their respective levels in 1960.

Figure 2. The difference between the GPI and GDP
curves in Figure 1.

Figure 3. GDP, net operation surplus (private), and
taxes (on production and imports) normalized to their respective levels in 1960.

Figure 4. GDP and consumption of fixed capital
normalized to their respective levels in 1960.

2/7/14

A few hours before the BLS releases the “Employment
Situation” for January 2014 we revise our prediction and estimate the expected
value of unemployment rate below 6.5%. The rate of unemployment in December
2013 is 6.7%. In 2014, this rate should fall down to 4% and even lower in 2015.
For details of our model, see our previous post. Here we just update two
figures with predicted and measured values. It is worth noting that our model predicts
2 years ahead. The accuracy of prediction is excellent.

Figure 1. Observed and predicted rate of
unemployment in the USA. The predicted curve leads the observed one by 2 years.

Figures 2. The predicted rate of unemployment. We
expect this rate to fall down to 6.0% and likely below in the beginning 2014.

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